Background trends and future directions

Mitchell Institute Policy Paper

Executive summary

The vocational education and training (VET) system in Australia plays a central role in the development of skills for the Australian workforce and makes a critical contribution to workforce participation, productivity levels, individual’s life chances and economic and social development.

The level of public and private investment in VET is therefore an important public policy issues.

Historical overview

Since 1974 the Commonwealth and state governments in Australia have jointly funded the development and expansion of Australia’s VET system. They have done so in the following phases.

The development of the TAFE system (1974 – 1987) – the Commonwealth and states jointly established and funded the Technical and Further Education (TAFE) system.

The emerging national system (1987 – 1991) – the Commonwealth formalised TAFE Resource Agreements with the states. These agreements linked Commonwealth policy objectives to outcomes agreed with the states. The Commonwealth and the states cooperated on the development of a national VET system and undertook a review of future VET resourcing needs. To meet future resourcing needs, the Commonwealth proposed that it should take over responsibility for VET funding.

The first ANTA Agreement (1992 – 1996) – the Commonwealth and the states jointly agreed to establish a national VET system through a new Australian National Training Authority (ANTA) reporting to state and Commonwealth VET Ministers. The ANTA Agreement was reached after the states rejected the proposal by the Commonwealth to take over responsibility for TAFE funding from the states. The Commonwealth agreed to fund growth in the VET system subject to the states maintaining expenditure on VET in the short term and outputs thereafter.

Renewals of the ANTA Agreement (1997 – 2004) – the ANTA Agreement was renewed in 1997 and 2001. Each of these renewals was characterised by protracted negotiations over which level of government should fund ongoing growth in VET and by a propensity for the Commonwealth to fund specific VET policy objectives outside of the Agreement. A new ANTA Agreement had not been reached in 2004 when the Commonwealth unilaterally abolished ANTA.

Skilling Australia’s Workforce Act (2005 – 2007) – this Act gave effect to the abolition of ANTA and strengthened the Commonwealth’s role in the national VET system while retaining the structure of the joint Commonwealth-state VET funding agreement.

National Agreements and National Partnership Agreements (2008 – 2016) – within the structure of a new Intergovernmental Agreement on Federal Financial Relations (IGAFFR) the Commonwealth and the states entered into a series of National Agreements to raise the proportion of the workforce with VET qualifications through a VET student entitlement and skills reforms including the extension of income contingent loans through VET FEE-HELP. Loan payments by the Commonwealth grew rapidly and unsustainably leading to major changes to and a current review of the scheme. Through VET FEE-HELP and other Commonwealth programs, Commonwealth funding outside of the Agreements also increased significantly.

The following figure shows the effect of this collective investment from 1991 to 2014 (the period when comparable data is available).

VET funding levels and shares and VET enrolments 1991 – 2014

The figure shows that since 1991 real terms VET expenditure has fallen into four broad phases:

The initial phase of growth funding under the ANTA Agreement (1991 – 97)

A period of static funding (1997 – 2006)

Further growth in funding (2007 – 2012)

A further period of static funding where increases in Commonwealth outlays offset declines in state outlays (2012 – 2014).

The Commonwealth’s share of public VET funding has grown significantly since 1991 when growth funding commenced.

Publicly subsidised enrolments are ultimately driven by public funding levels and as such the pattern of VET enrolments broadly follows the four expenditure phases.

Issues

While much has been achieved through this collective investment, the tensions and weaknesses in a shared funding agreement have continually surfaced. These include:

the difficulty of applying a uniform system of Commonwealth funding across multiple jurisdictions with differing budgetary needs and priorities;

how both levels of government can benefit from reduced costs associated with increased efficiency;

the frequent tendency of the Commonwealth to act as a direct funder outside of the agreement when it wishes to directly secure specific outcomes;

growing differences between jurisdictions in funding for the same qualification and in eligibility criteria for the VET student entitlement, compared to nationally consistent pricing and eligibility criteria in higher education; and

These weaknesses have been magnified in the nature and structure of the current national partnership agreements governing VET. Under these agreements short term improvements in VET funding, participation and qualification completions were unevenly distributed between the states and have not resulted in an ongoing and sustainable VET funding base.

Publicly funded VET enrolments are 13 per cent higher than they were 10 years ago, an increase of just 200,000 enrolments, and have trended down since 2012. This compares to undergraduate enrolments which have risen 43 per cent over the same period and which continue to rise.

A further deterioration in VET funding levels is highly likely. The gap in funding between VET and the other sectors of education will widen, diminishing pathways for school leavers wishing to enter VET, potentially distorting choices between VET and higher education and limiting opportunities for workforce retraining and upskilling.

The issue of future responsibility for funding VET is again under consideration by the Council of Australian Governments. The Commonwealth is also undertaking a consultation and review process for the redevelopment of VET FEE-HELP.

A draft paper prepared by the Commonwealth for COAG proposes that it assume full funding for ‘mainstream’ VET qualifications by bringing together subsidies and income contingent loans (with deregulated fees) in areas of national skills priorities. Funding would be fully competitive with TAFE and funded by the Commonwealth at the same rate as other providers. The states would retain responsibility for ownership and management of their TAFE systems and could fund TAFE but only to the extent required to ensure ‘competitive neutrality’ with other providers.

The draft paper makes an important contribution by proposing a more coherent funding system by linking course subsidies and income contingent loans into a single national pricing system (although the risks of fee deregulation operating with income contingent loans are not recognised as experience, which VET FEE-HELP has shown).

However, the draft paper fails to address the underlying problems with the current Commonwealth/state funding model: declining overall investment in VET (with the exception of VET FEE-HELP) and increasingly uneven investment across the states and territories.

Further, the draft paper does not seem to have provided a sufficiently compelling policy rationale to persuade at least some states to withdraw from VET funding. Nor does it provide a sufficiently detailed explanation of how a nationally funded system would work, including the important role of TAFE as the public VET provider.

The worst outcome for VET would be an impasse at COAG and a default to the current flawed funding model.

A way forward

The following steps are suggested as a process to guide future government decisions on funding responsibility for VET.

Develop a forward looking view about the nature of the VET system required by Australia in the 21st century as a highly innovative and adaptive economy and society.

Develop a clear understanding of the provider system required to deliver those outcomes – including the future role of TAFE as the public provider – and the role of other agencies including the national VET regulator.

Undertake a national assessment of future participation and resourcing requirements for VET- with a primary focus on the need to ensure that all young people have access to tertiary education across higher education and VET.

Agree on the range of qualifications that should be funded under a national VET system.

Develop a funding model for those qualifications by setting:

an efficient or benchmark price for each qualification;

the balance between public and private contributions (to make up the total price).

Redesign VET FEE-HELP to extend it to all nationally funded VET qualifications while ensuring that the scheme is sustainable – including options for providers to help meet the costs of income contingent loans.

Determine the respective roles of the Commonwealth and the states. Options include:

The Commonwealth could fully fund the course subsidy and meet the costs of income contingent loans (the costs of borrowings and unpaid debt).

The Commonwealth and each state and territory jointly fund the course subsidy and meet the costs of VET FEE-HELP.

The Commonwealth and the states could agree to each fund specific qualifications – for example the Commonwealth could fully fund Diplomas and Advanced Diplomas to ensure a consistent approach across VET and higher education – and fully meet the costs of income contingent loans for the qualifications they fund.

However, none of these options in themselves addresses the fundamental issue that clearly emerges from the analysis in this paper: declining levels of public investment in VET – particularly in some jurisdictions – and the consequences of the growing imbalance of investment in VET relative to schools and higher education. Addressing that issue is the threshold issue for COAG when it considers future options for funding VET in Australia.

Decisions on the future of VET should be taken as part of a redesign of funding of tertiary education in Australia across the VET and higher education sectors – a process in which the Commonwealth must take the lead.

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The Scan is produced by Inter Mediate, a Melbourne based public policy consulting practice, with a focus on education and training issues, particularly higher education.
The Scan reviews topical issues in the tertiary education sector and places them in a broader context.